Supreme Court takes on frequent flier program rights

12/3/13 8:33 PM EST

A major airline argued at the Supreme Court on Tuesday that individuals should have no recourse to the courts if they're kicked out of a frequent flier program without any opportunity to redeem their accumulated miles.

A lawyer for Northwest (now a subsidiary of Delta) faced off with an attorney for Minnesota Rabbi Binyomin Ginsberg as the justices took up Ginsberg's claim that he was unfairly booted from the Worldperks program in 2008 (and denied continuing "platinum elite" status) when the airline decided he had lodged too many complaints with its personnel.

The fine print in Worldperks gave Northwest authority to decide in its "sole discretion" to kick out anyone abusing the program. However, Minnesota law includes an implicit "covenant of good faith and fair dealing" that can limit parties' ability to take arbitrary actions in connection with a contract.

Former solicitor general Paul Clement, representing Northwest, sounded a bit cavalier about the rights of customers abruptly cast out of loyalty programs.

"You can't run a national, let alone international airline, if every one of your judgments about taking an unruly passenger off or taking out an abusive customer is going to be second-guessed by a jury applying reasonable standards of ordinary decency and morality," he told the court, according to the official transcript of the arguments. The markets and the federal Department of Transportation could rein in any misconduct by airlines, Clement said.

The justices' comments and questions suggested they're unlikely to rule for Ginsberg, but the jurists wrestled publicly with several complex questions related to contract law, such as whether the "fair dealing" convenant is just a way to interpret the contract or amounts to a freestanding public policy.

The central question in the case is how broadly Congress preempted state law and state courts when it passed the Airline Deregulation Act in 1978 and barred states from regulating pricing of airline service. While the justices seemed willing to accept the notion that airlines have effective immunity from state regulation of frequent flier programs that amount to discounts on air tickets, several justices suggested individuals might be able to pursue claims arising from airline loyalty programs branching out into credits and awards that have nothing to do with air travel.

The suit "has to do with membership in a frequent flyer program rather than...having to specifically with access to flights," Ginsberg's attorney, Adina Rosenbaum of Public Citizen Litigation Group, said in response to a question from Justice Samuel Alito.

"Can you earn miles by doing things other than flying? Can you spend miles on things other than flying?" Alito asked.

Justice Ruth Bader Ginsburg jumped in to point out that Ginsberg certainly appeared to have used the program to get what amounted to a discount on flights.

Justice Antonin Scalia suggested that would always be the case. "It doesn't seem to me to make any difference whether the only thing you get from the frequent flyer mileage is, you know, airfares or other goodies. They are all price," he said.

But Rosenbaum noted that some participants might not really be trading in air travel through the program because they "could be earning miles on their credit card [and] spending miles on hotel rooms....Reportedly, more miles are now earned on the ground than on flight."

Justice Stephen Breyer also chimed in on that issue, though he, too, seemed either unfamiliar with the basic outlines of the ubiquitous frequent traveler programs or insistent on only considering what was in the formal legal filings.

Breyer said the court might address Ginsberg's particular situation, while leaving open the question of whether state courts could consider frequent flier program claims entirely unrelated to air travel. "What I'm thinking about, obviously, is we might preserve that question for another day," he said.

When Clement returned to the lectern to give his rebuttal, he said the Supreme Court in a 1995 case established that the airlines' use of car rental companies and hotels as partners didn't affect how the programs were immune from state regulation. "This court has already crossed that bridge," he said.

But Alito didn't seem to buy that.

"If the facts were that under a particular program 90 percent of the miles were earned by purchasing things other than flying and 90 percent of the miles were spent on things other than flying, wouldn't that be very different?" the justice asked.

Clement tried to deflect that concern but ultimately said he wouldn't mind as long as the justices ruled against Ginsberg and left aside the question of nonair-travel use of airline loyalty programs.

"I'm not sure it would be different in a claim brought against the airlines. I mean, maybe if you want to sue the credit card partner, the ADA has nothing to do with that. But I would say that if you're suing an airline, the Airline Deregulation Act speaks to it. But if the court wants to reserve that [question], I suppose it could," he said.

CORRECTION (Wednesday, 12:51 A.M.): The initial version of this post gave an inaccurate year for Ginsberg's ouster from Worldperks.